Daily Currency Update
There is ample to digest this morning as markets react to US inflation data and the implications this latest print has on Fed policy expectations. The October US CPI report wrote in below expectations, printing flat on a month-by-month comparison, prompting a downward revision in the annual rate of inflation to 3.2% down from 3.7% in September. While headline inflation was impacted by a sharp decline in gasoline prices, core inflation also fell marking the lowest annual inflation rate in 2 years, clear evidence the Fed’s restrictive policy has worked in ensuring inflation trends back toward target. With inflation pressures seemingly under control, the likelihood of further Fed tightening diminished allowing the AUD to surge back through US$0.65. Having traded sideways through the domestic sessions and leading into the key risk event the AUD lurched off an intraday base of US$.6360, jumping through $US0.64 and US$0.6450 before climbing steadily through the rest of the overnight session to mark highs just short of the post non-farm payroll peak of US$0.6520. The question now is – can the AUD sustain this recent upswing? Our attention now turns to a busy macroeconomic agenda with China activity data, UK inflation and US PPI data dominating the crowded docket. Further contraction in US yields and an extension in the overnight risk on the move will be key in the AUD extending toward US$0.66.
Key Movers
Price action was dominated by US CPI data overnight and the US dollar crumbled as expectations the Fed is done tightening rates in this monetary policy cycle surged. Headline and core CPI both fell while measures of services inflation rose at their slowest rate in 4 months, with further pressures expected to moderate as wage gains diminish. All of the data significantly reduced market expectations the Fed will hike rates in December, with analysis now pricing a near zero percent chance policy makers will amend the current policy setting. While there is still at least one full hike priced into May 2024 markets lifted expectations for easing through 2024 pricing 100-point correction through year-end. Bond markets rallied and US yields fell with 10-year rates matching losses at the front end of the yield curve, down near 20 basis points. The Dollar has given up 1%, marking the largest single-day move in 10 months allowing the euro to surge back above US$1.0850 and the GBP to jump above US$1.25 while the Japanese yen forced the dollar back below ¥151, yet still lags other majors. Our attention now turns to a busy macroeconomic agenda with China activity data, UK inflation and US PPI data dominating the crowded docket and providing a catalyst for action through mid-week trade.
Expected Ranges
- AUD/USD: 0.6320 - 0.6580 ▲
- AUD/EUR: 0.5920 - 0.6020 ▲
- GBP/AUD: 1.9100 - 1.9300 ▼
- AUD/NZD: 1.0780 - 1.0880 ▼
- AUD/CAD: 0.8780 - 0.8950 ▲